Not My Employee – How Professional Employment Organizations Can Protect Against Unnecessary Liability | Goldberg Segalla

Key points to remember:

  • New Jersey’s concept of duplication allows the workers’ compensation court to find that more than one entity is an employer.

  • Where the only issue on a claim for medical and/or temporary disability benefits is which employer or carrier is liable for benefits, court rules allow the judge to order an employer to pay benefits without prejudice, subject to subject to subsequent reimbursement if another party is found liable.

  • Professional employment organizations must protect themselves by having clear guidelines and policies for determining the employees to whom they will provide benefits.

During a recent court hearing, I saw a judge issue an order requiring a Professional Employment Organization (PEO) to pay benefits without prejudice to an employee who was in no way associated with the PEO , according to the lawyer. The clearly distraught attorney argued that the PEO had been wrongly named in the action and had only recently formed a relationship with the actual employer. The business relationship did not exist during the alleged period of employment. The actual employer had not filed a response to the claim request and, therefore, was not present in court. In any event, the judge relied on a provision of the court rules that allowed him to order an employer – the PEO – to pay benefits without prejudice, subject to reimbursement, if the only question on the claim for benefits is who is the right employer or carrier. .

As described in the scenario above, sometimes when a party does the right thing, they can still be punished by the court. The judge issued an order against the sole party in the action because the actual employer had failed to respond to the claim request. Based on the concept of duplication and this provision of the court rules, it is imperative that PEOs take the necessary steps to protect themselves from possible unfair liability by taking steps to determine to which employees they are liable for payment. benefits.

The concept of duplication allows the court to find more than one employer for the purpose of providing workers’ compensation benefits. Among other factors, the court may determine an employer/employee relationship based on a rental agreement, payment of wages, the right to direct and control the work, and the ability to hire/fire/recall the employee. Sometimes, when a PEO leases an employee to a client, these factors may lead the court to conclude that the PEO and the client company could be employers for the purpose of providing benefits. But what if the client company hires an independent PEO employee and does not provide benefits? As seen in the scenario here, the judge will likely attempt to order the PEO to provide benefits to someone who was never its employee.

So how can PEOs best prepare to defend against this situation, you ask. By making it very clear to whom they are to provide benefits. Often, PEOs enter into a contract with a corporate client to provide health care benefits, payroll services, or some other type of service. The PEO and the client company clearly have a business relationship, but the PEO should make it clear that the business relationship does not automatically result in any of the client company’s employees being considered an employee of the PEO. The PEO should clearly state in the contract with a client company which employees it will cover for benefits. It should describe how these employees are hired and what business activities fall under the agreement with the client. The PEO should maintain a complete list of employees leased to the client company. It should specify that employees who are not hired by the PEO are not covered for any benefits.

The judge will consider the above factors to determine who is an employer in a PEO/client company case. Although the court’s rules still give the judge discretion to order a PEO to provide benefits without prejudice if there is a dispute as to who is the correct employer, providing the judge with answers to the questions below above will make it much more difficult for the judge to order a PEO to provide benefits, if all the factors weigh against the PEO as the employer. If we can provide the judge with a contract stating that only employees who have gone through the PEO hiring process are covered, a provision in the contract noting that the PEO does not direct or control the activities of on-site workers, and shows a list of all employees covered by the PEO, we will be in a much stronger position to argue against employment than if we simply said “this person is not an employee”.

The New Jersey workers’ compensation law must be interpreted broadly to provide benefits to injured workers. However, these benefits must come from the right employer/carrier and PEOs can use the tips above to protect themselves from paying benefits to employees hired independently by client companies.

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